Peeter Koppel: Economy after the coronavirus crisis

Peeter Koppel.
Peeter Koppel. Source: ERR

The ongoing healthcare crisis has been both tragic and enlightening. I've learned that we will never fly again, we will never travel again; never return to the office, restaurant, movies, theater, spa or – God forbid – the pub, Peeter Koppel writes.

The article was originally published in the Edasi portal.

It is definitely dangerous to go to the shops. Every surface is a case of the coronavirus waiting to happen. The second wave is right around the corner because restrictions were lifted. And if it isn't, it will definitely come in autumn. If not, it will come in the form of a tidal wave in the winter. There will not be immunity. Even if you recover once, you will catch it again and again!

There will not be a vaccine. If there will be a vaccine, it will not work because the virus will have mutated. There is no treatment nor will there be. Life has changed forever. The world has changed for good. What comes next is a quiet but extremely (life)threatening existence leading to an inevitable but terrible end.

Should this introduction of belletristic exaggerations distress the reader for one reason or that other one, there is nothing I can do. Distress away.

It reflects positions gathered over the past few months from people who are clearly wiser, more rational and more collected than yours truly when it comes to topics other than the healthcare crisis at hand.

Fear is utterly human and I wouldn't dare ridicule it. However, I do have my doubts in terms of the longevity of the mental state such thoughts illustrate among the wider masses.

History has shown us that healthcare crises than can be compared to one another have ended socially before they've ended medically.

It also serves as the guiding estimate of this economic observation.

The short term

Therefore, to start – considering the economy having been put on standby, the manmade economic vacuum lifting should give us a few quarters of extraordinary growth.

It makes perfect sense considering several businesses will be coming back from total standstill. However, subsequent optimism is not recommended as once this initial spurt is over, it will likely turn out a part of unemployment has a more permanent character.

Small businesses are especially vulnerable as they might find it very difficult to adjust in the conditions of the healthcare crisis. It also remains unclear how social distancing rules, should they be laid down again at some point, could affect turnovers and profits.

Derisive comments over lack of buffers are not appropriate here as – and let's be honest – no one makes preparations for their turnover (almost) disappearing for lengths of time. This means that fiscal stimulation or the filling of gaps by the state might not result in the strong recovery (anticipated). That said, it will help mitigate the shock for many businesses.

Additionally, all manner of short-term economic forecasts are extremely speculative today. For example, while the local healthcare trend is encouraging, there remain enough regions in the world where that is not the case.

This creates a situation where we have optimistic scenarios of the healthcare crisis subsiding at one end of the spectrum and talk of a monstrous second wave at the other. The most honest position is to admit that the word "forecast" needs to be replaced with the word "opinion" in the short term at least.

Longer view

Things are a bit (!) simpler when it comes to the long term. As we know that potential economic growth is determined by the growth of available labor and productivity, we can draw long-term conclusions tied to the crisis at hand.

Firstly, there is new motivation to adopt measures/technologies that improve productivity. On the other, the healthcare crisis' effects on productivity are definitely not all positive. Productivity means getting an increasingly high-quality production unit at a low(er) unit cost. Considering the fact that the healthcare crisis forces businesses to reevaluate supply chains and how secure they are.

Production will be brought back from cheaper regions. Supply security will be improved, while costs will grow and profit margins shrink. Irrespective of whether one likes globalization or not, it has clearly had a positive effect on productivity to suggest that "reversing it" has the opposite effect.

The second blow the healthcare crisis has delivered to productivity is the fact balance sheets have suffered. That means we are very likely talking about reduced preparedness and ability to invest. And investments are made toward innovation or growth of productivity in other words.

The third long-term problem associated with the crisis concerns growing expenses on making sure both staff and clients stay safe. While these measures are entirely understandable, they also constitute expenses that will not transform into increased productivity. Don't get me wrong – I'm merely stating a fact as opposed to passing judgment.

The fourth legacy this crisis will leave us with is the role of the state growing considerably. Most people who have had even minimal contact with the economy know that this cannot have a positive effect on productivity. It is probable more resources will be allocated to healthcare, leaving other fields with less.

Again, please do not misunderstand – I'm merely describing a likely development as opposed to passing judgment.

Therefore, it is no exaggeration to claim that the healthcare crisis has a clearly negative effect on productivity as an element of potential economic growth.

There is little reason to linger on the labor component in this equation as the trend of population aging in developed countries is hardly news these days. The extent of negative effects on productivity is difficult to estimate, while even a slight decrease could translate into great cumulative effects over time.

To return to the belletristic exaggerations in the introduction of this piece, despite understanding the acuteness of the subject matter and the risks involved, I have no experience or historical precedent based on which to claim any crisis or event could fundamentally change people's social behavior.

Society has a short memory and people will return to their habitual behavior as soon as the healthcare crisis seems to be in fathomable and controllable terms. Especially once we can talk about medical breakthroughs.

So yes, we will be crowding to board planes and other things again at one point. History seems to suggest that life will not just go on but also go about it much as it always has.


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Editor: Marcus Turovski

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